Real Estate Investor Magazine South Africa September 2013 | Page 62

USA

BY SCOTT PICKEN
bulbs, depending on the level of investment made. Backers of a new play might get tickets to the opening; more generous patrons might be invited to a champagne reception. This category could raise more than $700 million in 2013. The next biggest category is the donation market. This overlaps with the reward market: many artistic endeavors that use reward crowdfunding also encourage funders to contribute very small amounts of money, typically less than $25, without expectation of a return - except for the knowledge of having contributed to a worthy cause. Donors often receive a thank you in a program or liner notes. Traditional charities usually request donations to support their overall mission, and then decide for themselves how to allocate the funds. Crowdfunding portals can raise funds for individual projects, meaning donors can give to the project of their choice. This market may be worth more than $500 million in 2013. Venture capital, which gets the most media attention, is actually the smallest category. Traditionally, early stage startup companies are initially funded from credit cards and savings, and then reach out to friends and family. This usually covers the first $250 000. Beyond that point startups look for money from individuals (angels) or established venture capitalists, with the f irst seed round raising perhaps $50 0 0 0 0. Ex pected changes in Nor th American securities regulation could make it possible for companies to raise money via a crowdfunding portal, with contributors receiving an equity stake in the company. This category is the wild card for 2013. It could raise more than a billion dollars if the rules change, but less than $50 million if they don’t. Crowdfunding generally involves small c ont r ibut ion s at t he i nd iv idu a l le v e l . A lt hough t he top pledge pack ages can be more t han $10 0 0 0, on average t he individual contribution is likely less than a thousand dollars in almost every category. The funds raised for a particular project or investment tend to be in the thousands or tens of thousands of dollars, although on rare occasions they can be in the millions. For example, on one of the better known crowdfunded reward sites only 17 projects raised more than a million dollars and only two raised more than $5 million.
www.reimag.co.za

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The property revolution has started
distinct categories of crowdfunding that vary by type of portal and capital raised.

eloitte’s predicts that crowdfunding will be one of the 10 most important trends to watch in 2013. They predict that crowdfunding portals will raise $3 billion in 2013, double the $1.5 billion raised in 2011. Crowdfunding portals are websites that enable large numbers of indiv idua ls to financially support a project or company, with each backer contributing just a small percentage (generally less than one percent) of the total funding. A typical crowdfunded project has thousands of backers. Crowdfunding’s growth matters for two reasons. First, some crowdfunded projects raise funds for new technological devices and media content such as computer games. Second, the portals themselves are likely to become a new type of Internet portal. Media coverage of crowdfunding tends to focus on its role as an alternative to traditional venture capital (VC); however, there is much more to the concept. In fact, there are four

Categories of crowdfunding portals
Consumer lending is the largest category. Financial institutions and payday lending companies have for many years lent small amounts of money at relatively high interest rates to consumers with bad credit histories. Now, these services are available online through crowdfunding. In the five years between 2008 and 2012, crowdfunding portals likely lent more than $1.5 billion. In 2013 these loans are could to exceed $1.4 bil ???????????????????????????????????I??????????????????????????????????????????%??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????Q???????????????????????????????????????????????P?????? ????????????????????????????????????????????????????????????????????????((??()M???????????M?I????????%?????((0